Asr Nederland Nv Uns/Adr

Thank you, operator. Good morning, ladies and gentlemen. Thank you for joining us today. So welcome to the ASR conference call on our results for the first half year of 2023. On the call with me are Jos Baetel, our CEO, and Ewald Hollegien, our CFO. And Jos will kick it off with highlights of our financial results, a brief update on the ACON transaction, and we'll discuss the business performance. Ewald will then talk about the developments of our capital and solvency position, and he will also discuss some key points of the transition towards IFRS 17. After that, we will open up for Q&A. We have a full hour planned for this call, but we'll stop sharply at 10.30 to allow you to tune in to the AGEAS call on time as well. So please observe a limit of two questions so everybody gets a turn to ask questions. And finally, as usual, please review the disclaimer that we have in the back of the presentation on any forward-looking statements. Having said that, Jos, the floor is yours.

Thank you, Michel, and good morning, everyone. Thank you for joining us on the call. I hope that everyone has been able to enjoy a relaxing vacation and is ready for the upcoming season. Today is the first time we present our numbers under IFRS 17 and the same time this is the last occasion to talk to you about ASR performance on a standalone basis. Last half year was special in the first place because we successfully closed the transaction to combine ASR and Aegon, the Netherlands. In the meantime, we have continued to service our customers as you would expect from ASR and we've been able to deliver a very strong set of results and maintain a robust balance sheet. We've laid the foundation for the leading insurer in the Netherlands being able to capture market opportunities to enable growth, and we are now executing a thorough and detailed integration plan. As this is the first set of results on IFRS 17 from ASR, we have published a separate deck of slides to provide some further clarification on the transition from IFRS 4. ABART will later on highlight some key choices we have made on the methods and provide a bridge from operating result to OCC. So let's turn to slide 2 for the highlights. I'm sure you've been able to review the presentation this morning already, so let me just briefly discuss the key achievements. We continue to experience strong commercial momentum. Premiums received in the non-life segment increased by 19%, driven by organic growth in all product lines. The total inflow in the life segment remained fairly stable, of which total inflow in DC products rose by almost 8%, offsetting the natural decline in the individual life and pension DP service books. Operating results increased to 460 million based on strong financial performance of all segments, offsetting the additional Tier 2 hybrid expenses. Underlying Our organic capital creation improved in the first half of 2023, when excluding the impact of the additional Tier 2 hybrid expenses to pre-finance the Aegon Netherlands transaction. Taking the additional expense into account, our OCC amounted to 414 million, a touch lower compared to last year. Ewout will provide further detail on the moving parts of the OCC. Our solvency ratio remained flat, compared to year-end if we were to adjust for transaction-related items, like minus 3 percentage points from the higher interim dividend because the shares that we issued to AGON as part of the transaction are also entitled to the interim dividend, and a minus 3 percentage point due to the impact of counterparty default risk for the cash considerations. At the end of June, our solvency stood at 215%. This is after the interim dividend, which had a total impact of minus 7 points, resulting in a robust balance sheet for ASR standalone on the standard formula, providing for a strong foundation for the AGON-NL integration. Our operating return on equity increased 1.5% to 13.5%, So we continue to deliver solid returns on the equity capital allocated to our businesses. Interim dividend of 108 per share is 40% of the 2022 dividend per share that already included a 12% step up. Let's go to the next slide and look how we are progressing on our non-financial KPIs. We are very pleased with the progress we made this half year in delivering sustainable value to all of our stakeholders. The objective of 65% reduction of the CO2 footprint from our investment portfolio has already been achieved well before the targeted date. Further improvements from these levels may come at a lower pace because of the increased economic activities post-COVID-19 period. Our impact investment increased with 500 million to 3.3 billion. Our employee engagement remains quite strong. Our annual employee denizen survey showed a score of 89, exceeding the target of 85. All our efforts to be a leading sustainable insurer is receiving more recognition amongst the Dutch population. Our reputation as a sustainable insurer rose with one percentage point to 38. I'm sure you all noticed that the MPSR KPI is missing on this page. Now rest assured, we remain focused on becoming the best financial service provider, but this KPI is only measured once a year. And external recognition from the international ESG indices and benchmarks increased as well. On top of the existing leading positions, we have now also become a double A rated by MSEI. And just the other week, we got confirmation from FTSE for Good that we received top scores in all the subcategories. We scored five out of five. According to Sustainalytics, ASR is the second most sustainable insurance company in the world. Let's turn to slide four and talk about our progress on the business combination of ASR and Aegon NL. We are proud that we, within the earliest possible timelines, could fulfill the conditions needed for a successful completion of the transaction with Aegon. In closing this transaction, And with the preparation that we have done in the first half of this year, we have laid the foundation for a leading insurance company in the Netherlands. We started with the execution of the integration plans immediately after closing of the transaction. With the implementation of a management board, the appointment of the leadership teams to manage the various business units, and a formalization of the conditional appointment of two additional members of the supervisory board, we now have the governance structure in place for the next phase. The labor unions, in the meantime, approved the conditions of the employee protocol for Aegon Netherlands employees that enables us to merge the employer entity as a first next step. Based on detailed integration plans, we are confident that we can execute the integration in the timelines we shared during the announcement, and that we at least will deliver on the value enhancements of the business combinations being at least 185 million of synergies and in the third years after closing the 1.3 of OCC. A major milestone the coming months is the merger of the employee legal entities. We plan to complete the merger and integration of our non-live businesses and the group staff functions before the end of 2024 and migrate our non-live IT environment to the most cost-efficient system across the organization and close locations no later than 2025. In the meantime, we will work on our PIM to expand the Aegon model to ASR Live. When development and approval process is completed, we expect to merge the live operations in 2025. Thereafter, the PIM model can be broadened with additional models to capture further capital benefits. More details on our integration activities and planning will come available during our investor update on the 30th of November next. Let's turn to slide five and talk about the non-live business performance. I'm pleased to see that a strong commercial momentum was reflected in growth of premiums received with almost 19% in all product lines, primarily a result of growing sales volumes. The non-life operating result went up with 10 million in the first half year, mostly due to the absence of weather-related claims and a higher operating investment and finance result in the first half of 2023. This more than offset adverse claims experience in disability and health. The combined ratio in P&C of 90.7 showed a strong underlying performance. The absence of weather-related claims and the benefit of higher discounting impacted from higher interest rates compared to the first six months in 2022. In disability, the combined ratio increased to 94.4. the increase is mostly related to a one-off strengthening of provisioning in the group disability due to the alignment of non-economic assumptions between sub-portfolios and some adverse claims development in the self-employment portfolio. Excluding this one-off of approximately 30 million, the combined ratio of disability would be closer to the 90% level. Health benefited from the enhanced cost coverage due to significant premium growth from an increase of over 200,000 new customers during the last renewal season. Combined ratio increased to 99.5 due to adverse claim development on the supplementary health cover. Though happy with attracting many young customers, growth was higher than anticipated when setting pricing. So let's now go to slide six about the live business. We were happy with the organic growth and the commercial performance of our pension products. The premiums received and DC inflow in the life segment remained overall fairly stable at 1.1 billion. Our DC products, Werknemerspension and Doonpension, were up 16.6% respectively to a total inflow in DC of 729 million. This largely offset the decrease in the service book portfolio of individual life and pension DB. Funeral premiums increased slightly compared to last year. Operating result of the life segment increased 19 million to 310 million, driven by 15 million higher operating investment and finance results reflecting a positive impact of lower UFR drag due to higher interest rates. Operating insurance service result increased by 49 million due to a reclassification of 46 million between OISR and other results, which was not reflected in the first half year results of 2022. Corrected for this reclassification, the OISR increased by 4 million. The expected insurance service results consisting of the regular CSM and the risk adjustment release into the results remained stable with a slightly higher CSM release offset by a decreased risk adjustment release, mainly driven by higher interest rates. The experience variation improved 5 million. So let's go to slide seven. The operating result of the two fee generating segments, asset management and distribution services combined amount to 35 million remained stable compared to the first half of 2022. Asset management benefited from organic business growth and a higher fee income from increased third-party assets under management. Total assets under management for third parties increased by 2.3 billion to almost 31 billion as a result of asset growth in the ASRDC products and a higher third-party assets under management in the real estate, partially offset by lower real estate valuations. Mortgage origination decreased $2.3 billion to $1.4 billion due to a lower demand as a result of rising mortgages rates. Our market share, however, remained stable. Fee income in distribution and services increased as a result of organic growth and small acquisitions. Despite a solid operational performance, the operating result decreased due to a higher one-off expense related to previous years and higher interest expenses. Now, in the second half year, the portfolio mix of this segment will see some changes concerning asset management by handing over mortgage funds, adding a larger mortgage business, and two new complementing distribution and services businesses, Robodus and Edasco. Having said that, I would like to hand over to Ewout He will talk about solvency, OCCD investment portfolio, and the balance sheet, and of course, IFRS 17. The floor is yours.

Thank you, Jos. And good morning to everyone on the call. So happy to run you through all of the items that Jos just mentioned. And it's the last time we will talk about ASR as it was till the 3rd of July. And I'm sure you will all recognize that we have provided you with a predictable set of numbers and that we have a strong financial foundation on which we can onboard Aegon NL. We will also provide you today with some information on how the financials of the combinations looks like. So with this cliffhanger in mind, let us start with slide nine, which shows the movement within our Solveseat. As mentioned earlier, the Solveseat position remains on a robust level of 215%. This is still ASAR standalone on the standard formula basis, and it's actually the last time that this is the case. The group ratio going forward will be a combination of standard formula and a partial internal model. Just to be sure that we are on the same page, this number still excludes the 1 billion tier 2 we issued to pre-financed the EGON and ELL transaction because recognizing it as capital is contingent on the closing of the transaction, which was not yet the case by the end of H1. We started the year at the Solstice level of 221% and excluding the transaction impacts, the ratio remains flat. The transaction took out 6% additional Solstice points. The interim dividend that we pay out in September and is included in the standalone ratio of ASR per H1 will be paid out over 76 million additional shares coming from the ABB and the placement at Aegon Group. Because of this, the interim dividend impact of the balance sheet is 7% instead of the more regular 4% that you know from us. Additionally, we had 2.25 billion of cash on the bank account per 30th of June, for which we need to hold counterparty default risk. That brings additional minus 3% Solstice impact, which is on this slide part of market and operational developments. The other market movements are driven by the impact from high equity markets, some spread widening, re-evaluations in real estate and inflation, which is for a smaller part compensated by a higher VA. The operational movements reflect some model adjustments being compensated by somewhat higher legality factor for life, driven by improved profitability in the life segment. The OCC added 12% points to our Solstice ratio and compensated for the regular dividend and the market movements that I just mentioned. The ratio is a strong position for adding EGON and LBAN. During the transaction announcement, we disclosed a proforma solstice ratio post-transaction and financing based on information that we had back in October 2022. Following the closing of the transaction on the 4th of July, we now provide an updated proforma solstice ratio being over 185%. just a fraction lower than the number we mentioned when we announced the transaction last year. The slightly lower number reflects primarily impact for market developments and is a strong starting position. Let us now have a closer look at our OCC presented on slide 10. The OCC came in at $440 million. As said, a touch below last year at $428 million. but it includes the interest expenses from the $1 billion Tier 2 instrument, which is $26 million after tax for half a year. In business capital generation, we see similar effects as Jos mentioned from the operating results compared to last year, with high contribution from P&C offsetting the lower contribution from disability, which is driven by the one-off provision strengthening, and health in the business capital generation. The interest rate developments have been very favorable, and this leads to a lower UFR unwise which is still positive for our OCC. For the first half year, this resulted in roughly 30 million favorable impact on the U of R direct compared to the same period last year. However, higher interest rates also resulted in a lower market risk SDR release, which was offset by higher capital release of our businesses despite a higher new business strain in health and led to an overall neutral impact of the net capital release compared to last year. And I can imagine that you are looking for some guidance for H2. And let's cut this in three pieces. Firstly, the ASR standalone part. Secondly, impact of the transaction. And thirdly, a number for the Aegon NL business. Starting with ASR standalone, which I provide excluding the 26 million T2 expenses. So given the seasonality between the first and the second half of the year, it's best to take H2 of last year as a starting point. The OCC of H2 last year was around 225 million. To this number, we should add 30 million because of the lower UFR drag at current rate, and there are, of course, some other small pluses and minuses. So ASR standalone could deliver approximately 260 million in H2, and therefore 700 million for the full year. The transaction-related items are roughly 50 million for the Tier 2 hybrid expenses for the full year, and around 25 million for the half year, consisting of a number of items being the bridge financing, which we used to finance the remaining 175 million, the loss of Northgate's funds as a consequence of the asset management agreement with Aegon Group, and the negative impact of a lower average solstice ratio, which we used to determine the contribution of capital release. Then third part, Aegon and L contribution, we expect in H2 an OCC of roughly 300 to 325 million. So when we bring this all together, That will bring us to around $925 million to $950 million for the full year. If you would use this as the basis for your roll forward, then there are two larger items to take into account. Firstly, you should, of course, also add the first half of the OCC contribution from Aegon NL. And secondly, adjust for the extraordinary interest margin in the bank, let's say $75 to $100 million per annum. Now, we are, of course, also on the path of growing our business and realizing synergies. Looking ahead, we expect to generate OCC well in excess of dividend, and the OCC that we retain will enable us to build a strong balance sheet and to participate in any sell-downs that Aegon may initiate in the future. And on top of that, we will maintain our financial discipline and aim to deploy capital rationally and economically as to make attractive returns. Let's go to slide 11 to talk about the investment portfolio. The investment portfolio remains robust and well diversified with a strong skewed quality. The asset allocation remains relatively stable in the last half year. A decrease in the value of fixed income portfolio was mainly due to the plan short, a sale of short-term government bonds to Dagon and L considerations. 5.1 billion real estate portfolio is well diversified as you know. Roughly 40% of the real estate investment is in rural property, which significantly mitigates the overall impact on lower revaluation, which primarily took place in the residential property. Over the first half year, the weighted average revaluation of our real estate portfolio was minus 3.7%, which was broadly in line with the expectation that we had in the beginning of this year and also mentioned earlier. The lower valuation of real estate reflects the general market developments. The revaluation on residential real estate includes a one-off impact of tax for investors from 8% to 10%, which came in place on the 1st of January this year. Our investments in renewables are largely windmills, where the low energy prices causes an unfavorable revaluation, offsetting the positive revaluation of the year before. And recent price development appeared to show improving conditions in the Dutch housing market, and the outlook for rural real estate remains stable to slightly positive. That is why we expect no major deviations in the valuation of the real estate portfolio for the second half of the year. Let's turn to slide 12 to discuss the flexibility of the balance sheet. The balance sheet is a strong foundation for the combination of ASR and AGON-NL. Unrestricted T1, so the UT1 capital represents 74% of owned funds and 158% of the SCR. Financial leverage amounts to 26.3%, including the issued shares as part of ACTI and the 1 billion T2 bonds issued to pre-finance business combination with AGON-NL. It is 32.1%. The interest coverage ratio is at an excellent level, even when including the tier two hybrid debt expenses. Pleased to see that our S&P single A rating was confirmed in July. Our debt maturity profile, as you can see, is nicely stacked, and the first call date is in the second half of 2024. Let's move to slide 13. The holding liquidity was at the record level of 2.7 billion, but excluding the financing of the transaction for the business combination, the liquidity position stood at 581 million. which is in line with ASA's policy of maintaining capital at the operating companies and upstream cash to cover dividends, coupons, and holdings expenses for the current year. Regular remittance amounts $145 million for live and $68 million for non-live, and the sourcing position of legal entities improved to 165% for live and decreased slightly to 155% for non-live after remittance. Cash upstream for the AGON transaction from live and non-live of in total $500 million already included in the SOL-C2 ratio at 2022 year-end as foreseeable dividends. Let's then go to slide 14 and enter into the IFRS 17 highlights. Next to the presentation on the H1 numbers, we disclosed this morning a supplement with explanatory notes to guide you through the key differences between IFRS 4 and IFRS 17 methodologies in SOL-C2. And I know that there are IFRS 17 lovers and haters, and for the haters, I have not so good news. Because in the second half this year, we have to add Aegon NL and harmonize differences in choices between the two organizations, meaning that the numbers might change again going forward. You can imagine that the finance teams of both organizations, which really did a great job to produce these IPR-17 numbers, were not really happy with the timing of the deal. Having said that, it's also a great opportunity to further optimize choices, but let me take you where ASR stands today in their key methodology choices and to take you to the distinctive features of our approach. For ASR standalone, we choose to apply fair value through P&L for most of the asset categories, with an exception for equities as these assets are not directly matched with the liabilities. As default, we apply the general model approach which relates to pensions, individual life, funeral, and also disability. This is a large part of our portfolio, with longer-dated contracts and with disability also recurring premium. Together with the contracts with direct participating features, like unit-linked and DC product, where we apply the VFA approach, this contributes to the CSM and risk adjustments we present in this presentation. The retrospective approach is applied for around 30% of our portfolio, which is quite an achievement. For the transition of our funeral portfolio, we went even back to contracts of 2002. We think this is a thorough approach and leads to a fair representation of CSM. Unfortunately, for the self-employed portfolio of disability, we had to apply the fair value approach, which resulted in lower CSM than the real profitability of these older policies, and because of lower CSM release, also a higher combined ratio than we have seen under IFRS 4. Let's now turn to the next slide to have a closer look to the CSM development. Slide 16, please. As you can see, the CSM increased by 8% in the first half of this year, mainly due to the addition of the new profitability production. The new business CSM of disability was 108 million, benefiting from adjusting pricing of our products and the higher interest rates at the start of 2023 compared to 2022 being a key element in the valuation. Please note that there's a timing difference compared to OCC. The disability new business for a new year is part of the new business CSM per the 1st of January and released over the period of the contract, mostly being one year, where the new business strain in OCC is already reflected in Q4, causing the seasonality pattern of new business strain in age two of OCC that you all know. Life contributed to the new business CSM is 65 million, partly due to the indexation of funeral policies in the beginning of the year. The highest CSM in a half year, 2023, is also reflected in a higher release compared to last year, as the new business CSM of disability, partly featuring one-year contracts, releases within one year. We expect CSM release of the ASRs portfolio to be around 6% to 8% per annum in life, but at the same time, we are also adding new CSM. The net release we expect to be around 4% to 5% per annum in the life segment. Looking at the CSM development in 2022, the changes in estimates mainly reflect rising inflations in that year. And let's now turn to the next slide, operating results versus OCC. During the implementation of IFRS 17, we aimed to stay as close as possible to the SOL C2 framework to enable comparability. However, while IFRS 17 is more aligned to SOL C2, differences between operating results and OCC remains. And for educational purposes, let's look to the main differences. The most distinctive difference comes from the application of different interest rate curves. ASR applies a similar approach to SOLC2, incorporating 20 years to 30 years marked observations in the explanation from a 20 years first smoothing point. Other parameters, like the liability and liquidity premium, the LIB, versus SOLC2-VA, The level of the CRA, which IFRS is doing economically and SOLCI applies a corridor, are different and therefore leading to valuation differences in the UFR drag and excess returns. IFRS 17 in itself does not have the concept of SCR release, and while the underlying methodology of the risk adjustment and the risk margins are similar, the different input parameter can lead to differences. Next to that, and as mentioned earlier, Timing differences on the recognition of new business and release of profits will lead to differences. Solstice 2 profitability is added at the end of the year, while IFRS 17 recognizes during the year thereafter, which is the actual period that we insure clients. And this concludes my part, and now back to you, Jos, for the wrap-up.

Thank you, Ewout. And for that wrap-up, please turn to page 19. As said, with the completion of the transaction, we have laid the foundation for a leading insurance company in the Netherlands. We now started the execution of the integration plans and are committed to deliver to the value enhancements of the combined organization. ASR delivered over the first half year a very solid performance and we have maintained a strong balance sheet. IFRS changes reporting but does not change our plans and direction nor our capacity to grow the company and to pay dividends. I'm confident about the momentum of our businesses and our ability to deliver on the plans. On that basis, we are comfortable to guide to a full year OCC of around 925 to 950 million euros million for the combined businesses in 2023. Going forward, we expect to generate OCC well in excess of the dividends. The OCC that we retain will enable us to build the capital position to participate in any sell-downs that Aegon may initiate in the future. As mentioned earlier, we intend to participate in sell-downs to the extent that it ensures and facilitates successful placements. Just to get the expectations right on this topic, we do not aim to buy all of the shares that Aegon may sell at some point in the future. It surely will be attractive to an ASR shareholder. Decisions on timing and amounts of any additional capital returns will be dependent on the overall strategic plans of the combined entities and the ability to deploy capital in attractive growth opportunities. If it takes longer for Aegon to go out, we have the possibility to do a share buyback. We expect to share our integral view on capital deployment during the CMD 10 months from now. But today, in the here and now, our agenda in the near time is clearly focused to successfully integrate the businesses and bring the value that we promised. A lot of work needs to be done, and I'm confident we will deliver on this, as ASR Foundation is strong to onboard Egon Manel. We will organize an investor update 30 November in London to provide you an update on progress that we are making with the integration. So, over the next 10 months, we will have two CMDs, one on the progress of the integration, And in June next year, we will come with the new targets and an update on capital management. Thank you. And I now am happy to hand over for your questions.

Thank you. As a reminder, to ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. In the interest of time, we will be concluding this event at 10.30 CET time.

We will take our first question.

Your first question comes from the line of call clues from ABN AMBRO-ODDO-BHF. Please go ahead. Your line is open.

Hello, good morning, and thanks for the questions. First question is about the solvency ratio, how that developed from a market point of view since the end of Q2. We saw some market effects, so could you give an update how that changed specifically for the market effects? So that's one. Secondly, also thank you that you provided the performance solvency ratio for including AGOM, that's helpful. And you say above 185%, could you give a little bit more clarity? You have a reputation to be quite conservative, so give some comments on that one. And also the numerator and the denominator that you use to basically add to your own funds and your own SER, what do you include for that? And last question is on the synergies, or at least the integration presentation that you have on the 30th of November. Could you give a little bit of clarity that we have the right expectations? What kind of agenda, what kind of items can we expect during that presentation for my questions? Thank you.

on the first two A routes.

Yes, thank you, Cor, for your questions. Let's start with the Solstice 2 development since end of Q2. I think a few developments that we have seen since that moment. One is that mortgage spread tightened a bit, which is a positive for our Solstice ratio. Secondly, what we have seen is that the equity markets came down. Yeah, the funny thing is always, and it's also what you've seen in the solstice development of H1, is then when equity markets goes up, actually our solstice is impacted negatively and the other way around. So also there, a few solstice points for that item. And thirdly, what we have seen is that the VA, so the volatility adjusted, came down a couple of basis points. So when you sum that all up, I would expect the ratio to be a bit higher, let's say, low to mid single-digit number. Then on your question on the 185, so what is then the expectation on the 185, above 185, what is then the exact number? Let's say that it's somewhere between 185 and 190. That is something that we can, that we expect it to be. or that we have actually calculated to be, and on the numerator and the denominator, I think there we see the same developments as we have seen in the sole zero ratio of both ASAR and Aegon NL, that the required capital came down a bit and that the own funds also came down a bit compared to what we have assessed when we announced the transaction. So both were a bit lower. but the ratio in itself didn't change.

And on your third question, we are still preparing the agenda for the third year of November, but we will present in more detail the integration plans, the benefits from the integration plans, the timing from the integration. We will zoom in a bit more in the cost synergies. At that moment in time, we probably will have more in-depth insight on all the developments. So we probably will update that too and give some more view on the total financials of the combination. We now aim to have four presenters by then. AWELT will be the last one and round it all up in a financial way. The two COOs will present the detailed integration plans going forward, and I will kick it off with a summary of what we expect out of the total integration of the combination. So it's going to be quite interesting and useful to join us in London.

Thank you very much.

Thank you.

We will take our next question. Your next question comes from the line of Andrew Baker from Citi.

Please go ahead, your line is open.

Great, thanks for taking my questions. So both are actually related to CSM growth. First, obviously, first half, very strong growth. You pointed out the seasonality in new business. Are you able just to give us a sense of what percentage of the full year 23 new business for CSM do you think is already included in the first half? And then secondly, are you able to give us anything on the CSM and the runoff profile of Avon Netherlands and how this might impact the group dynamics and some of the growth that we've seen. Thank you.

Yes, on the CSM growth for the second half, I think the majority will be recognized in H1, Andrew. That's related to the disability business, for example, but what we also discussed, so actually per the first of gen, you recognize the CSM of the new business in the CSM development. And a large part of that will also be released during the year and then renewed actually per the first of January. So there you will see that it's coming and going from CSM annually. I think on the live segment, we saw that a large part of the CSM that we created. was related to the indexation of the funeral policies, and we also do that once a year. So also there you see a pattern that is actually mostly focused in the beginning of the year, and that you see the release more gradually during the year. So the new business accretion is more in the beginning of the year, the release is more a stable pattern during the year. That's why I said I expect that the net release on the, so accretion minus the release, will be roughly 4% to 5% on an annual basis. And that also reflects the fact that most of the CSM accretion was already recognized in H1. Hopefully this helps. Then secondly, your question on the impact of the CSM from Agon NL and the runoff pattern. And what we will know is that we will add a significant portion of CSM coming from the Aegon NL business, which over time might also further increase due to the synergies that we realize in the live segment. So that, I think, will bring a lot of CSM going forward. It is too early days to say something about the release pattern. That is something that we also have to look how that plays out when we harmonize, for example, the policies, so the reporting policies that we have in place and what will that mean for the runoff pattern. So a bit too early to say something about the runoff pattern of the combination. What we can say is that the combination together will have a different amount of CSM than ASR has today. that will probably also positively develop in the coming years due to the synergies that we realized and capitalized on that segment. Great.

Thank you.

Thank you. We will take our next question. Your next question comes from the line of David Balmer from Bank of America.

Please go ahead. Your line is open.

Good morning. Two questions on OCC, please. Firstly, on the contribution from Agon in the second half, that's a nice uplift from the previous number you've given. Can you explain where that is coming from? Is it simply UFR-related, or are you also accounting for changes in the asset allocation that have taken place since June 22? And then secondly, we're all struggling a bit here to... to understand the different drivers of your segment result under the new IFRS regime, but we do have OCC. So are you able to give us an idea of the contribution by division on your OCC for the period, please?

Yes, so let's start with the OCC. So where is it coming from? So what we actually see, so we do take into account the actual investment portfolio of Aegon & L. And indeed, I think that's a bit more favorable than we have seen when per H1 2022, which was the basis for the OCC expectation that we used when we announced the transaction. So a bit positive from that. What we also see is that, and I mentioned that the bank is contributing positively. So yes, there's some upside compared to what we assessed when we announced the transaction. Furthermore, we actually see that we are broadly, that is broadly in line with our expectations. So we see that it's developing very well in line with what we expected when we did the due diligence. Then on the segmental OCC, I think that is something that we don't have today. We are thinking about how we can incorporate that going forward, given the fact that OCC and Solstice 2 are more in line. So that is something that we are considering. But we can't do everything at the same day, so it's something that we will come back on at a later moment.

Thank you.

Thank you. We will take our next question. Your next question comes from the line of Naseeb Ahmed from UBS.

Please go ahead. Your line is open.

Thanks, Sen. Morning. So just coming back to the topping of the OCC bridge that you gave us, let's say it's 950, including Aegon, and then adding another half of Aegon and Netherlands, 300 million. And you said for Aegon Bank, you get a higher uplift from the NIM, let's say another 100 million. So you get to 1.3 billion already for full year 23. I know that's the top end of the ranges that you provided. Am I correct in that, Matt? So you're at 1.3 already of full year 23, and your target was 1.3 post integration by 26. So Just a question there, whether my math is correct. And then secondly, you've got debt call dates over the period until 2026. Have you thought about whether you're going to call them and whether the higher interest debt cost would be backed into the 1.3 billion already? I think it's not. And whether you want to offset that with some uplift on the synergy estimates. Thanks. Those are my two questions.

Okay, thanks, Nasib. Jos is looking angry to me because he doesn't receive any questions. Let me answer. I can answer the first one, if you want to. No, I think a bit too positive on your first, on the bridge that you provided. So, yes, we're at the second half year of Aegon NL, but I think what you missed is the Tier 2 expenses, so the Tier 2 expenses of $50 million. But also the the other items what I mentioned there So the bridge financing which we used to finance the remaining 175 million the loss of mortgage funds and a somewhat lower ratio So that was 25 million. We expect that to be 25 million for the second half year when you do do that But when you milk by multiply that by two Then that's also 50 so 50 plus 50 is 100 million for the rest. I can I can follow you and And the bank?

The bank, yeah, he added it.

And the bank is, so I think there you see that there are extraordinary interest margin in banks of, let's say, 75 million to 100 million. Understood, yeah, got it.

Yeah.

Thank you. We will take our next question.

Sorry, there was still one question left. Apologies.

Apologies. Please go ahead. On the call date. So let's first start with our views that you should not price the market negatively on the call date. This is something that is not part of the OCC expectation going forward to refinance that with higher rates. But the full thinking about capital deployment is something that we will also take into account when we when we do the capital marks day in may and then we will also think about how to refinance if we want to refine this and how to thank you we will take our next question and the question comes from the line of michael hutner from berenberg please go ahead your line is open

Thank you. The first one is just a repeat of the bridge. I'm very confused because there's so many numbers. If you could just state it really clearly and really slowly, both for 2023, so the second half of this year, and also what it would be on a normalized basis, including Agon on a full year basis, that would be so helpful. And then the other question is the $1.3 billion gap. target of three years after closing. Does that mean 2025 or 2026? Thank you.

We closed the transaction mid-2023, and if you put that number into your spreadsheet and add three years, you will end up at the mid of 2026. So it will be in 2026.

Okay. And the bridge... Yes, so let me reiterate that one. Sorry for not being clear. So what we have said is for ASAR standalone, we expect this year to end up somewhere in the 700 million range. What we see... So that's one part of the bridge. The second part of the bridge is that we expect that the transaction-related items for 2023... is 75 million, so 50 million from the tier two, so the full year tier two expenses, because we added up in the 700 million, so now we should deduct it fully for the transaction impact, so 50 million from the tier two expenses, 25 million from some smaller items like loss of mortgage funds, and the lower capital ratio. So 700 minus 75 million, and for Aegon we expect to add 300 to 325 million. That brings us to around 925 million to 950 million for the year. Then to go to the, well, if you want to use this as a roll forward for 2024, I think it's good to add Egil Nanel also for the first half year, so let's say another 300 to 325 million. But it's also good to mention that in addition that the bank has extraordinary interest margins and that normalization of 75 to 100 million is not strange when you do that. And in addition, so the 25 million that I mentioned from the other items, that is only for the second half year and that should also be multiplied by two. And I think then you are more or less in line with the view that we have ourselves.

Just to be clear, the 75 to 100 million which you mentioned on the bank, do I add it or do I subtract it?

No, subtract it. Sorry, the contribution from the bank in the results of 2023. So that should be subtracted.

We assume that there is some overperformance given the current rate environment for the bank. And it's not certainly that that will continue over the next couple of years. So that's why we want to be careful with that number.

That's brilliant.

Thank you so much. Thank you. Thank you. We will take our next question. Your next question comes from the line of Benoit Petroc from Kepler Chevrolet. Please go ahead, your line is open.

Yes, good morning. So talking about the bank, I mean, do you still have a plan to sell the bank and is that the reason why we need to take the profit out on the OCC still? And also on the capital distribution, like additional capital distribution, In the past, you talked about a threshold of 175%, solvency to ratio. Looking at your integration phase, at which type of solvency to level will you be seeking to kind of execute a share buyback? What will be a good level for you to think about excess capital returns? Thank you.

To your first question, the bank is part of the parameter that we acquired and has currently the position like it was within Aegon Group. And from time to time, we will always review any business within ASR. And if that leads to other conclusions, we will come up with that. But as from closing, it is part of the parameter. So the reason that we said you have to take out the 75 to 100 million of OCC is not that we are envisaging to sell the bank, but that we expect that the result of the bank over time will normalize a bit more. The bank is doing quite well at the moment, but it's not reasonable to expect that that will continue at the same level. And that's why we want to be careful and mention that 75 to 100 million OCC On your second question, Benoit, maybe to summarize our view on capital deployment, the 175 as a minimum solvency to think about additional capital buybacks is still the 175. We haven't changed that. Having said that all, we now start with the integration. in 10 months from now we will come up with further details on how we look at capital. The way we look at it today is we will generate more capital than we pay out in terms of dividend. That puts us in the position that even when Aegon decides to start to sell down the position to take part of that sell down and that's a way of buyback shares but specifically from one shareholder, and that proves that we are confident that we are able to build up that capital. Even when the sell-down of Aegon would take longer than the build-up of the capital, on that we will, in 10 months from now, we will provide more detail. If that is going to take more time, then we definitely will look into the capital returns. And as I said before, historically, we are always on 70% to 75% of OCC. And also, for the medium term, we expect that as soon as the capital is built up, that we will return to a return of roughly 70% to 75% of the OCC, and we will get there gradually.

Great. Thank you very much.

Thank you. We will take our next question. The next question comes from the line of EMP from Exane BMP Paribas.

Please go ahead. Your line is open.

Hi, morning. Thanks for taking my question. It's just a couple on the disability business. I was just hoping to provide a bit more colour on some of the adverse claims experience you've had in the disability business. Even if you sort of strip out that one off, it does look like the claims experience has deteriorated somewhat. And then similarly, in the CSM, you're flagging strong new business and disability, yet sort of flagging some adverse claims experience in the P&L. So just trying to square those two facts, if you could, would be really useful. Thank you.

Well, if we take out the roughly 30 million of the 1F, we have seen, especially in the first quarter, we have seen growth over the last couple of years, especially in the area of the white collar. And there we have seen an increase in the insured salaries. And especially in the first quarter, and that could have been due to more flu, etc., we have seen more incoming people that called in sick that normalized already over the second quarter. So we are now already back to the normal. So it was specifically in the first quarter that we have seen an adverse development in the individual cases. So it worried us by then, but given the fact that it has been normalized and that we are on top of it, it's not something that we expect that will continue for the second half of the year.

Yes, and then the one on the CSM. So actually the profitability of the new business is indeed very favorable. So that's the CSM that you see that we have added in the first of January. to the point on the loss of profitability by the strengthening of the provisioning, that is actually related to the in-force portfolio. So to the in-force claims portfolio, I have to put it like that. So the claims that we already had in the books, there we saw actually the provision strengthening. Maybe it's good to give some color on what happened with the provision strengthening. Actually, already in 2022, We changed the model for the intermediary portfolio, how we calculate the technical provision for the collective portfolio, so the claims that we pay after two years of sickness. and we harmonized that with the authorized agent's portfolio. So we just harmonized actually the methodology that we applied for the intermediate portfolio with the authorized agent portfolio. It's not something that we have actually seen happening, but it's more kind of a methodology harmonization that we have done, and that's actually the normalization. That's actually the one that we have needed to put in the numbers, but it was all related to the already existing claims in the portfolio. And that's why you don't see it in the new business system, but you do see it in your profitability. Thank you.

Thank you. We will take a final question. And your final question comes from the line of Michel Bellator from KBW.

Please go ahead. Your line is open.

Yes, thank you. So two questions. So first on the... new business strains from the growth in P&C and disability I mean I'm just referring to the up to which point we're gonna see let's say a material let's say strain because of this growth so I guess I want to know basically the how the release of capital will develop the next, let's say, three years, in particular with reference to the growth in P&C and disability. The second question, sorry, maybe a clarification. In terms of the shareholding or agon shareholding, so agon stake on the new business, on the new company, let's say, the new perimeter, do you expect Aegon to start to sell after the synergies, the realization of the synergies? Are there any restrictions, let's say, in the medium term for Aegon to do that? What is your view? Because I'm a bit confused about this point. Thank you.

Maybe you can take the first one and I will cover the last one.

Yes, I'm more than happy to take the first one. I think there are two items to mention when it comes to when do you see actually the growth also kicking in in the profitability. I think we already see that in the operating profit. So in the operating profit, it's actually already increasing. But you also see under OCC is that when you grow your business, the new business stream also increases. And with that, you actually don't see that immediately kicking in in the OCC. So the extra profitability that you have, because there's also a new business thing opposite to it. So in operating profits, yes, you see some growth. Yes, you see the growth of the profitability from the growing book in the OCC. You see it coming, but you also have a new business day, which kind of offsets the extra profitability. But you have, of course, a much larger book. So when the portfolio will normalize and you don't grow further, then you will see that kicking in.

And to your second... Sorry, when do we expect this to normalize?

Can you repeat that, Michele?

Yeah, when do we expect this to normalize? Let's say this kind of...

Well, we still have the ambition of a 3% to 5% growth in the P&C and disability space, because we do see that we have attractive return on capital in that business area. So it's definitely a growth area for us. So we hope we don't see that kicking in too early. But I think the strong increase in premiums that we have seen over the last couple of years, especially in disability, that will slow down. That's our expectation.

And to your second question, also given the time and the promise that we made to Aguias, we do only have one limitation for Aegon and that is there is a lock-up until the end of this year. After that, they are free to start to sell down. And whether they are going to wait or not, that's up to them. If you have any questions on that, I think IR of Aegon is the best to ask to. We prepare ourselves that as soon as they start to sell down, if they decide to sell down, that we have the capital available to take part in such a sell down process. like we have done when the government started to sell down their position and that was very helpful to investors in our stock. So we want to be prepared and as I said, if and when it will not be in due time, then we will look at other ways to deploy the capital and to give it back to shareholders even when we can't use it for further growth of the business. And having said that, I think... In the meantime, the AGEA's call will start or already has started. Thanks for joining us and I hope to see most of you next Friday when we have a breakfast with the analyst community in London. So thanks for joining and we see you on Friday.